Software, in particular, typically is equally amenable to licensing or sales models. In a word, control is typically the most compelling reason to license your IP rather than selling it. Freedom from ongoing duties to buyers is often a compelling reason to sell it. Video game makers, particularly those who make games for play on the Internet or otherwise among gaming “communities” seem increasingly have settled on the licensing model because they think it enables them to insure a level playing field for all of their customers. Inevitably, however, their customers feel, or at least want to feel that they own the software they purchased.
So what are the principal factors courts use to differentiate a license from a sale? Case law seems to be coalescing around three. Considering how one wants to address each may help individual IP owners decide whether licensing or selling works better for them.
The first seems obvious, what the agreement says. If it says it is a license, it more likely is.
The second is whether the IP owner significantly restricts users’ ability to transfer the software. In a recent Ninth Circuit case concerning the World of Warcraft game, the court held that restrictions prohibiting re-sale, restricting transfer to those who agreed to abide by the end user license agreement and requirements that the transferor delete all of its copies, evidenced a license rather than a sale.
The third is whether the IP owner imposes significant restrictions on the manner in which the software may be used. The court in the World of Warcraft case held that restrictions on the locations in which the software could be used , prohibitions on use with third-party software and reservation of a right to alter the game or suspend users evidenced a license.
